Coinbase vs SEC: Crypto Regulation Woes

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By A D

Coinbase, one of the largest cryptocurrency exchanges in the world, recently filed a court action to compel the U.S. Securities and Exchange Commission (SEC) to respond to their 2022 Rulemaking Petition.

On April 24, 2023, Coinbase filed a court action in the U.S. District Court for the Northern District of California, asking the court to compel the SEC to respond to their Rulemaking Petition. Coinbase argues that the SEC’s failure to respond has caused harm to the cryptocurrency industry, causing uncertainty for investors and hindering innovation.

Coinbase’s court action alleges that the SEC is in violation of the Administrative Procedure Act, which requires federal agencies to respond to petitions for rulemaking within a reasonable time. Coinbase argues that the SEC’s failure to respond to their petition is unreasonable and has caused harm to the cryptocurrency industry.

In December 2022, Coinbase filed a Rulemaking Petition with the SEC, requesting the agency to adopt regulations that would provide clarity around the classification of cryptocurrencies. The petition asked the SEC to create a regulatory framework that would distinguish between digital assets that are securities and those that are not. Coinbase argued that this clarity would help the cryptocurrency industry grow and encourage innovation while providing investors with much-needed protections.

the us sec in session as a judge sits in  a hearing. coinbase has sued the authorities over delay in crypto lawmaking
Coinbase has urged the U.S. SEC to lay clear and certain ground for crypto regulation. Image Courtesy:Financial Times

The SEC has not yet responded to Coinbase’s petition, which has led to frustration and uncertainty within the cryptocurrency industry. Coinbase’s court action is an attempt to force the SEC to provide a response to the petition and clarify its position on cryptocurrency regulation.

Coinbase’s petition for rulemaking is significant because it represents an effort to bring clarity to the classification of cryptocurrencies. Currently, the SEC has not provided clear guidance on which cryptocurrencies are considered securities and which are not.

If the SEC were to adopt regulations based on Coinbase’s petition, it would provide clear guidelines for companies in the cryptocurrency industry, which would encourage growth and innovation. It would also provide investors with the protections they need to feel confident in investing in cryptocurrencies.

If the court compels the SEC to respond to Coinbase’s petition, it could lead to the adoption of regulations that provide clarity around the classification of cryptocurrencies. This would be a major step forward for the cryptocurrency industry and could help to encourage innovation and growth.

On the other hand, if the court rules against Coinbase, it could delay the adoption of regulations and further hinder innovation in the industry. It could also lead to increased uncertainty for investors and make it more difficult for companies in the cryptocurrency industry to operate.

SEC’s recent run ins with the crypto industry

The SEC recently deemed certain cryptocurrencies to be securities, subjecting them to federal securities laws. The SEC specifically targeted cryptocurrencies that were sold through initial coin offerings (ICOs), which they argued were unregistered securities offerings. The SEC argued that the issuers of these cryptocurrencies failed to register their offerings with the SEC, and in doing so, violated federal securities laws.

In another instance, the SEC won a $2.8 million lawsuit against a company accused of manipulating the price of a cryptocurrency token. The SEC alleged that the company, which developed a cryptocurrency trading platform, engaged in manipulative trading practices to inflate the price of a token. The company was found to have violated federal securities laws by manipulating the price of the token to benefit themselves and their investors.

Read: SEC wins $2.8M in a lawsuit for suspected manipulation of the price of crypto tokens

The SEC also won a lawsuit against a company accused of selling unregistered securities through an ICO. The company, Hydrogen Technology Corporation, allegedly raised $7 million through an ICO, which the SEC argued was an unregistered securities offering. The court agreed with the SEC, finding that the company violated federal securities laws by selling unregistered securities through an ICO. The court ordered the company to pay a $6.3 million fine and prohibited them from engaging in future securities offerings.

Read: SEC Wins Lawsuit Filed Against Hydrogen Technology Corporation

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